According to major High Street banks, July saw a significant increase in the total value of savings deposits. The rise is being attributed to the introduction of the New ISA (NISA) rules first announced by Chancellor George Osborne in this year’s Budget.
Figures reported by the British Bankers’ Association (BBA) show that July saw a total of £4.9 billion deposited into the new NISA accounts as savers were keen to take advantage of increased flexibility and, in particular, the newly-increased £15,000 tax-free limit. Last July, deposits totalled a much lower £18 million.
Usually, a surge in savings deposits is seen in April at the start of the new tax year, when ISA holders benefit from the start of a fresh annual allowance. However, April deposits this year were lower than in previous years. Only £3.9 billion worth of savings deposits were made in April this year, compared with £6.3 billion in April 2013 and £7.5 billion in April 2012. Instead, a surge was seen in July, similar to the surges that usually take place at the start of the tax year. This suggests that a large number of savers were specifically holding out for the new rules to take effect before making their deposits.
ISAs or the newer NISAs are held by approximately 23 million UK adults, which equates to around half of all adult individuals in the country. However, low interest rates mean that yields from these accounts are currently very low. Bank of England figures suggest that the average saver is only getting a 0.86% return from their ISA, or 86p for every £100 of funds held. The increase in the annual allowance was introduced in an effort to help savers reap greater levels of benefit from the use of tax-free savings accounts.
Cash-only savers especially benefitted. The rise in the annual allowance was coupled with the scrapping of the rule stating that only half your allowance could be held in cash. This meant that savers who do not wish to hold stocks and shares experienced an effective near-tripling of the limit. Where previously cash-only savers could only hold £5,760 tax-free in an ISA, they can now hold up to £15,000.
Those who do wish to hold stocks and shares in an ISA also benefit from increased flexibility. Stocks and shares can be mixed with cash in any combination to make up the total ISA allowance. Money held in stocks and shares ISAs from previous tax years can be transferred into new cash NISAs to take advantage of the increased cash limit, though this may be partially subject to terms from individual providers.